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This year will likely be full of surprises, just like 2024…and virtually every other year. Surprises are the core reason that your investments can achieve above inflation returns in the long-run.
Surprises present you with two distinct choices: one, you can react; or two, you can plan accordingly. Expect surprises each and every year and build this into your financial planning framework. Normalize surprises so that you aren’t tempted to bail out of your long-term plan.
3 “Don’ts” for 2025
Don’t Overreact to Daily News
You can accomplish your most important goals by deliberately acting on your financial plan, not by reacting to daily news. The broad economy, investment markets, and geopolitics are unpredictable and always full of surprises.
Reacting, or more likely, over-reacting to troubling news is a trap. Once you react to one thing, it’s easier to react again and again. There will always be good news, bad news, and news that’s simply random.
This is where a little soul searching comes into play. You need to have a financial plan that you can stick with during all sorts of market conditions and with all types of news.
Don’t Try to Predict the Market
The trap of relying on never-ending predictions about the economy or the markets can be alluring. That’s why so many investors choose that route. It’s easy to get on that path, but much more difficult to instead stay laser focused on your lifetime aspirations.
Each year, various “experts” weigh in on how they think the market will fare for the year. The market aggregates these viewpoints into the wisdom of the crowd, which generally is difficult to beat.
The really hard part is this wisdom from hundreds of thousands of market participants may differ from your own. You ultimately have to decide if you think your voice should drown out all the others.
Don’t Be Ruled by Emotion
Most of the financial decisions you make originate emotionally, with either fear or greed being the primary determinants. If you use these emotions as a base and then mix in the trends of the day, you have created a terrible formula for successful investing.
Humans are emotional beings, and you can’t simply turn these emotions completely off. You can, however, control what you ingest each day in terms of news and information about the investment markets.
Honestly, since news of all types is on 24/7, much of it is just entertainment, with no real value. If you continually find yourself reacting to what you read or hear, this is a telltale sign that you aren’t truly following a long-term financial plan.
While the world is full of pundits with widely varying predictions, surprises by definition can’t be predicted. If you can learn to “expect the unexpected”, you can avoid the heavily emotion laden money decisions that often take you off your intended path. Start there. Ready for a real conversation?
Related: The Price of Long-Term Returns: Accepting Market Declines